Federal Investigation of Price Fixing by Sotheby's and Christie's

This article reported that "Justice Department investigators have subpoenaed truckloads of financial documents from more than a dozen prominent Manhattan art dealers and from Sotheby's and Christie's, the world's largest auction houses, in what appears to be a wide-ranging antitrust investigation."

On the basis of questions asked of them and their lawyers, art dealers said they believe investigators were looking for the possibility of collusion and price fixing among art dealers buying at auctions.

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This intriguing article reported that "The rarefied and secretive world of Manhattan art dealers has been shaken by a Federal investigation into possible price fixing."

"As details come to light, what appears to be a wide-ranging antitrust investigation looms larger than dealers first imagined, and some worry that basic ways of doing business are being called into question."

The article explained that "the business of fine art has always been considered insular, if not elitist."  It characterized the art marketplace as "a field that tended to make its own rules until the early 1980's, when the NYC Dept. of Consumer Affairs began imposing consumer-protection regulations."

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The Times reported on the fine art bona fides of Sotheby's chairman, A. Alfred Taubman.  Mr. Taubman is a real estate developer who has been cited as one of the key originators of suburban shopping centers.  And he was described also as "an art collector and socialite, known from Manhattan to Southampton to London to Palm Beach for his luxuriant lifestyle."

The article detailed that Mr. Taubman "expanded his billion-dollar empire in 1983 when he bought Sotheby's, thereby marrying his lifelong passion for art with his skill as a retailer and developer."

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Ms. Vogel reported in this article that "As it deals with a widening federal anti-trust investigation, Sotheby's the leading worldwide auction house, yesterday announced the resignations of A. Alfred Taubman, its major shareholder, as chairman and Diana D. Brooks, arguably the most powerful woman in the art world, as president and chief executive."

She described the issue here:  "Any illegal collusion could involve tens, if not hundreds, of millions of dollars."

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Here, the Times reported that:  "Diana D. Brooks, known as Dede, is said to have such a keen head for numbers that she can calculate auction totals faster than Sotheby's computers."

Ms. Brooks's background for the fines arts is reportedly only her prior experience at Citibank, where she had been a lending officer.  "While she had no background in the arts, she began in Sotheby's finance department and worked her way through the ranks to become the first woman to be named president of an auction house."

The article said that her husband is Michael Brooks, a venture capitalist at J.H. Whitney and she served on boards including those of Yale and Morgan Stanley Dean Witter.

The article did not report her having any training in the arts.

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In this article, Ms. Pollack noted that the Federal investigations into Christie's and Sotheby's was ending up focused on "the cult of secrecy that still pervades the art market."

It emphasized that although neither Christie's nor Sotheby's had admitted culpability, the resignations of their CEO's and Sotheby's chairman and chief stockholder "have led to the most negative interpretation of the shady facts."

She wrote that "What has shocked the art world is the fact that the federal government has decided to treat Christie's and Sotheby's as it would any other business."  And "many of the dealers were gleefully adding rumors of their own," she continued.

"This is just the tip of the iceberg," one dealer was quoted as saying.  "Wait until the feds find out about the private sales," said an art consultant.

She also quoted Andrew Schoelkopf, former head of business development at Christie's, and now CEO at Onview.com, an online art enterprise.  He said:  "The art business has prospered for centuries on the basis of incomplete or inaccurate information.  Now companies are making it much more efficient and easy for collectors and scholars to access information in a timely fashion."

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In this article, the Times' reporters described the escalating gravity of the investigation.  "Prosecutors in the federal anti-trust investigation of Sotheby's and Christie's have evidence that a scheme to limit competition by fixing commissions charges to buyers and sellers was set in motion not by subordinates, but by the chairmen of the world's auction giants at the time, according to people involved in the investigation."

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In this article, the Times looked even more closely into the business practices of the art market

For example, "A highly publicized federal anti-trust investigation of Sotheby's and Christie's has raised questions about whether the aggressiveness crossed the line into illegality with an agreement between the houses to fix the commissions charged to buyers and sellers.  But whatever may have gone on behind the scenes, it is clear these temples of style and wealth have been changed by a modern-day quest for market share and growth."

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Here Ms. Vogel and Mr. Blumenthal described the bombshell results of the Federal investigation:  "The world's largest auction houses, Sotheby's and Christie's, agreed yesterday to pay $512 million to settle claims that they cheated buyers and sellers in a price-fixing scheme dating back to 1992."

The U.S. Justice Department prosecutors were trying to conclude a "three-year criminal investigation focusing on evidence that the two auction giants stifled competition by colluding on a host of business practices."

The court records included documentation recording years of secret meetings by top officials of the two art auction houses focused on "colluding on fees paid by buyers and sellers as well as a host of other business practices."

It reported that the two art auction houses would have to split the approximately $1 million in additional costs to notifying the 120,000 buyers and sellers and to cover related administrative expenses.

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Mr. Blumenthal and Ms. Vogel reported here that A. Alfred Taubman is a shopping mall magnate who never finished college.  They wrote how he transformed strip malls into upscale shopping centers opening the nation's biggest mall in Schaumburg. Ill in 1971.

They reported how he "rescued a bloated Sotheby's from corporate raiders in 1983 and turned it into a retail center for art."  And they concluded with the "axiom:  selling art is not too different from selling root beer."

Mr. Taubman, with homes in Palm Beach and Southampton, purportedly infused Sotheby's with 80's glamour, before he resigned as chairman on Feb. 21, 2000, after Christie's announced it was cooperating with a criminal antitrust investigation.  But Mr. Taubman remained the controlling shareholder of the auction house.

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This article reported that, "Speaking in a low, controlled voice, Diana D. Brooks, the former president and chief executive of Sotheby's auction house, pleaded guilty in a federal courtroom in Manhattan yesterday to fixing commission fees with the company's arch rival, Christie's, and pointed the finger at A. Alfred Taubman, Sotheby's former chairman, whose orders she said she was following."

It also reported that Mr. Taubman, the Detroit shopping center magnate who bought a controlling interest in Sotheby's in 1983, quickly issued a denial through a spokesman who said, "Whatever Ms. Brooks chose to do, she did completely on her own without my knowledge or approval."

The Times emphasized how the pleas by Sotheby's and Ms. Brooks, and the information disclosed by the Justice Department's antitrust division in Washington "put a strong spotlight on an industry that for all its art and glamour prefers to keep its financial practices out of public view."

"Those charged today were engaged in classic cartel behavior of price-fixing, pure and simple," A. Douglas Melamed, acting assistant attorney general for the antitrust division was quoted as saying.

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In this report, the Times detailed some of the art market practices exposed by the Federal antitrust investigation. "Handwritten memos at the center of the collusion case of Christie's and Sotheby's auction houses suggest that the companies secretly altered time-honored and costly inducements used to attract sellers.  Acting together, they dropped low-interest loans, ceased making donations to sellers' favorite charities and devised a system to increase their profits when art sold above a guaranteed minimum, according to the documents."

It continued, "The arrangement beyond the already admitted collusion of fixing the commission fees paid by sellers paint a picture of competitors operating not so much as cutthroat rivals but almost as cozy partners, happy to consult each other on matters big and small to the detriment of their customers."

This article reported on the documentation federal prosecutors got from Christie's, which cooperated with the antitrust investigation.  The documents suggested that "more Christie's executives knew about the collusion than has been previously reported and that the officials discussed it, sometimes in worried terms.  They also suggest that top officials at Christie's were keenly aware of the law and believed that they could skirt it."

Ms. Vogel and Mr. Blumenthal write how the case has "scandalized the $4 billion international auction industry" for two years and how it resulted "in a half-billion-dollar civil settlement with both houses, and guilty pleas by Sotheby's and its former chief executive, and the growing criminal investigation."

After all, this investigation resulted not only in federal criminal conspiracy charges, it also resulted in a civil class-action lawsuit brought by 130,000 buyers and sellers that was then settled.

The sentencing of Diana D. Brooks, former president and chief executive of Sotheby's was set for Nov. 19.  The trial of A. Alfred Taubman, Sotheby's former chairman, was expected in October.  The article also reports, "Whether Ms. Brooks gets a prison term hinges largely on how the government and United States District Judge Richard Berman perceive her cooperation with the prosecution."

[The attention contemporary art receives in academic and curatorial research seems to have significant parallels with commercial market prices.

The next Tab includes articles on the federal price fixing trial of Sotheby's, the world famous art auction house.]